The Slicing Pie Handbook

There are four different situations under which a person can leave a company:   Termination for cause Termination without cause Resignation for good reason  Resignation for no good reason In some cases, such as termination

Non-cash contributions include time, ideas, relationships (that turn into customers, suppliers, employees or investors), pre-owned equipment or supplies, and some resources such as office space. Cash contributions consist primarily of unreimbursed expenses and, of course, cash. Using the calculations from the allocation framework, an individual’s contributions are converted to slices and their portion of the company is calculated on a rolling basis using the following formula at any given time:

Equity in a startup entitles the owner to a portion of the company’s rewards, if and when they come. The rewards are a portion of the future profits or the proceeds of a sale. Slicing Pie is based on a simple principle: a person’s % share of the rewards should always be equal to that person’s % share of what’s put at risk to attain those rewards.

If the company has the cash, managers can offer to buyout slices at the current rate ($1 per slice in the US). Remember, this doesn’t mean slices are “worth” something, it is just means to compensate people for taking a risk and providing a means to put cash in their pockets. It’s important to note, while I recommend $1/slice, the company can certainly offer more or less than that. The employee can take it or leave it. The company can make any offer it wants, it just can’t force a buyback.

when a person contributes to a startup they are betting the fair market value of that contribution on the future outcome of the startup. The fair market value of a year of a person’s time, for instance, is equal to their salary for a similar job at a company that had the means to pay.

When everybody is getting paid for their contributions (after breakeven), they will no longer be putting their contributions at risk. At this point the model will essentially “freeze,” and, subsequently, it will tell the managers how to divide up profits, if and when they are dispersed. Or, it will tell managers how to divide up the proceeds of a sale. The profits a company generates or the proceeds from a sale are the rewards of a startup. Remember, a person’s % share of the rewards should equal their % share of what’s put at risk.

If a person takes no risk, he doesn’t deserve any return. If a person takes 100% of the risk, he deserves 100% of the return. If two or more people share in the risk, they each deserve a portion of the return that properly reflects that risk relative to the other person. If one person puts $100 at risk and another person puts $1,000 at risk, the person who put in $1,000 has taken more risk relative to the person who put in $100. If the other person also put in $1,000, then both people risked the same relative to one another. If one

I recommend a non-cash multiplier of two (2x) and a cash multiplier of four (4x). These numbers are set based on my personal experience with the model and they are important. Resist the urge to change them! The multipliers make the model work.

unambiguous. The Slicing Pie Principle is:   Your % share of the reward = Your % share of what’s at risk   The reward I’m talking about is financial and comes in the form of profits/dividends or the proceeds of a sale. What’s at risk are contributions of time, money, ideas, relationships or anything else participants invest in a startup and don’t get paid. Everyone deserves a slice of the rewards that properly reflects their slice of what’s put at risk to achieve those rewards. Some people believe

Although the Slicing Pie model can be part of a legal contract (you will find contract templates at SlicingPie.com), at the core of the model is a moral agreement. It’s about doing right by the people who help you succeed.